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Interpretation of income, profit, or gain in relation to interest not received but entered in account books for proper record-keeping. Assessment of income tax on interest not actually received but acknowledged by debtors to save limitation. Consideration of interest not received but taken into account in executing or renewing a bond to save limitation for income tax assessment. Treatment of interest not received but included in decretal amount as income for tax assessment. Analysis: The Commissioner of Income Tax referred three questions to the High Court under Section 66 of the Income Tax Act, regarding the treatment of interest not actually received but entered in account books by the assessees. The questions revolved around whether such interest could be considered income, profit, or gain liable for income tax assessment. The assessees sought clarification on various scenarios where interest was not realized but recorded for accounting purposes, including instances where debtors acknowledged the interest to save limitation or considered in bond execution. Additionally, the assessees attempted to include a fourth question related to interest included in decretal amounts, which the Commissioner rejected due to a missed deadline for submission. The High Court noted that the questions posed by the Commissioner and the assessees essentially addressed the same underlying issue. The crux of the matter was whether interest, though due to the assessee and recorded in their accounts, could be deemed income without actual receipt. The Court emphasized that the mere entry of interest in account books, without realization, did not constitute income, profit, or gain for tax purposes. The Court clarified that the essential question was whether interest due but unpaid, and recorded in the interest ledger, should be treated as income under the mercantile system of accounts. The Commissioner's assertion that such interest should be considered income was deemed incorrect based on a misinterpretation of Section 13 of the Income Tax Act. The Court distinguished a previous judgment from the High Court of Madras, highlighting that in the present case, the interest was not shown as received, whether in cash or through account adjustments. Instead, the interest was depicted as still due and potentially unrecoverable. The Court emphasized that Section 13 mandated the treatment of sums shown as received in accounts as income, whether actual or constructively received. However, it was clarified that Section 13 did not extend to treating sums not received at all as income. Consequently, the Court ruled that interest shown as due but not received could not be classified as income for tax assessment purposes. The Commissioner of Income Tax was directed to bear the costs of the proceedings, including the pleader's fee.
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